Stocks in Australia and Japan fell, while cryptocurrencies such as Bitcoin also fell.The return of tariff concerns comes as risk appetite is supported by strong profits and heavy investment related to artificial intelligence. That poses a new test for stock markets, which have soared to record highs during the AI-led rally after recovering from the sell-off caused by Trump’s century-high tariffs.
“The immediate market reaction will likely be a classic uncertainty shock,” said Shoki Omori, chief strategist at Mizuho Securities Co. in Tokyo. “It is a clear signal that tariffs are being redefined as a geopolitical weapon rather than an economic bargaining tool. The point is not the initial 10%. The point is that nothing is demarcated anymore.”
Trump said this weekend that he would impose a 10% tariff on goods from eight European countries starting Feb. 1, rising to 25% in June unless there is a deal for a “Greenland purchase.”
The move quickly drew criticism from European leaders, who are now on the verge of halting approval of the trade deal signed last year. Bloomberg reported that French President Emmanuel Macron could ask for the activation of the EU’s anti-coercion tool – the bloc’s most powerful retaliatory tool. “The outcome of these new trade tensions is unclear, but what has long been clear is that there is no such thing as trade or tariff certainty anymore,” analysts including Carsten Brzeski, global head of macro at ING Bank, wrote in a note to clients. “What is clear is that an outright trade war between the EU and the US would only leave losers.”
Asian assets were already under pressure after US shares gave up earlier gains on Friday to close 0.1% lower after Trump suggested he would nominate someone other than Kevin Hassett to succeed Federal Reserve Chairman Jerome Powell. Treasury bonds slid across the curve as traders scaled back expectations for rate cuts, raising the likelihood that former Fed Governor Kevin Warsh will be nominated to lead the Fed.
The initial focus in Asia will also be on Chinese data, which could show that the economy remained optimistic in the fourth quarter and is likely to end 2025 with the weakest quarterly growth in three years. According to a Bloomberg survey, gross domestic product is expected to rise at an annual rate of 4.5% in the three months to December 31, slower than the 4.8% in the previous quarter.
Eyes will then shift to the European market, with the region’s shares likely to bear the brunt of any sell-off, according to strategists.
Deutsche Bank expects that the impact on the euro will ultimately be limited because the US is dependent on Europe for its capital, while others see Trump’s salvo purely as a negotiating tactic to gain influence ahead of the World Economic Forum in Davos this week.
“My working assumption is that an ‘off-ramp’ of these threats will be found soon, culminating in another ‘TACO moment,'” Michael Brown, a strategist at Pepperstone Group in London, wrote in a note to clients. “With the fundamental bull case for risk still resilient, and provided any European retaliation remains largely rhetorical, I would view stock dips as buying opportunities for now and wouldn’t be surprised if the week’s initial currency moves fade relatively quickly.”
#Asian #shares #fall #gold #hits #record #rate #problems #return